Navigating the perfect storm (last of two parts)

The biggest differentiator between families that last and those that fall apart is open, honest, transparent communication, and that means getting into the challenging governance process of managing the emotional overlaps starting with the family, business and ownership ecosystem.

Notwithstanding that a family enterprise, by definition, is one where there is an intention of keeping control within the family, the challenges of successfully perpetuating a family business remain a daunting task for family members. The most important hurdle is overcoming the saying that “wealth only lasts for three generations.”

I am sharing part two of last week’s article:

3) Make an honest and realistic assessment of your gene (family) pool.

You may want your first-born son to run the business, but does he have the commitment or even the interest to do it? Is he passionate and does he have the requisite skills to grow the enterprise? The key is evaluating the strengths of all possible successors and not just the first-born offspring. Whatever the outcome, it is important to continuously recruit the best professional talents so that in the event a key business leader dies or becomes incapacitated, or the successor under-performs and falters, the business will not be compromised.

4) Fair is equal, equal is never fair. Equal shares in the business is discouraged.

While equality is a nice idea in theory, it may not be in the best interest of the business. It may be better for the successor who has been chosen to have a larger share of business ownership than other family members who are not active in the business. Another possible option that you can incorporate in the shareholder’s agreement is to impose voting rights for family shareholders who are active and non-voting rights for those not active.

5) Institutionalize a family training office for successors and next generation members.

Quoting our training partner in Asia, Excellence in Education (ExCed), “If you think education is expensive, try ignorance!” How can you expect the next generation members to take over and run your business successfully if you haven’t spent any investment in educating him or her on the rudiments of leadership and management? These two interventions will propel the growth of the business.

6) Get professionals to implement the succession plan.

A qualified family business coach can guide the family business in the succession process. Our firm has even created a dedicated team comprising former senior executives to take the lead in helping operationalize a successful succession plan. If the intention is to hand over your family business to the next generation, putting off business succession planning is the worst thing you can do. A good succession plan can ensure that shared family and business vision and values are aligned.

7) Choose a non-family professional as successor. When family members are not qualified or too young to assume a sensitive position, the leader can explore other options, like hiring a non-family professional to assume the mantle of leadership while mentoring the next generation members. Business owners should learn from Stan Shih. As founder and chief executive officer of global giant Acer Computers, Shih not only prohibited his family from joining the business, but passed the top position in 2005 to a veteran executive who had helped Acer establish its brand in Europe. This move won praise from suppliers, customers and investors alike, enhancing Acer’s reputation in the highly competitive tech market.

Shih declared, “Only when our business, including our own, is managed by the most professional and competent managers can we create higher value for ourselves and our shareholders.”